Remuneration is a key element of employment conditions between employers and employees. Employers need to set remuneration levels that attract and retain the people they need, while staying within their budget. In the State sector, annual remuneration adjustments are made through a combination of collective bargaining and organisational remuneration review processes. These are influenced by organisational business needs, wider market conditions and the departmental budget position each year.
All State sector agencies, except state-owned enterprises, must take into account the Government’s Expectations for Pay and Employment Conditions. The Expectations provide the framework for adjustments to pay and conditions, including collective bargaining. Adjustments must support the achievement of the Government’s priorities for the State sector, be affordable and sustainable within baseline funding and they should not lead private sector movements and trends.
Wage movements across the economy have been slower since the global financial crisis in 2008/09, as indicated by movements in the Labour Cost Index (LCI) produced by Statistics New Zealand. Annual wage growth in the public sector has been below that in the private sector since September 2010. Across the Public Service (core government departments) wage growth has been lower still and this trend held in the year to 30 June 2016.
In the year to June 2016, the LCI measured an increase in wages and salaries of 1.6% in the private sector and 1.3% in the public sector. Within the public sector there was considerable variation; the overall wage increased in the Public Service by 0.7%; in the education sector by 1.1%; in the health sector by 1.7%; in and in local government by 1.7%. By comparison, general inflation as measured by the Consumer Price Index (CPI) increased by only 0.4%.
The chart in tab 2 above shows the LCI trend in salary and wage movements of selected sectors since March 2010, on a quarterly cumulative basis. Generally the gap in wage increases widened between the public and private sectors. By 30 June 2016, public sector wages had increased by 8.8% over the six year period compared with 12.2% in the private sector. The CPI increased by 7.7% over the same period (excluding the effect of the GST increase on 1st October 2010 from 12.5% to 15%). Within the public sector over those six years, Public Service wages increased by 7.0% compared with: 7.9% in the education sector, 8.2% in the health sector and 13.0% in the local government sector.
The HRC survey provides information on the base salaries of staff in the Public Service as at 30 June each year. In 2016, the average annual salary was $73,693, an increase of 2.1% from the previous year. This movement is different to the LCI measures discussed in the previous section, as the HRC salary movement is affected by changes in the occupational composition of the workforce, movement in staff pay, service increments, merit promotions, performance-related increases, and salary differences between new and departing staff.
The trend since 2000 is shown in the chart in tab 1 below. Since the global financial crisis in 2008/09 Public Service annual salary growth rate has averaged around 2%, about half the average growth rate in the previous nine years.
Median salaries measure the mid-point of the salary distribution (half of the employees are below or above this salary level). It is less effected than average salaries by a small number of employees with very high salaries. The median salary for Public Service employees was $63,081, up 1.8% from the previous year, as shown in the chart in tab 1 above. The growth pattern is similar to that for average salaries, discussed previously.
As at 30 June 2016, 11% of the Public Service workforce were management staff, comprising 27 chief executives (plus one vacancy), 928 tier 2 and 3 managers and 4,451 other managers. This is shown in the table in tab 2 above. The remaining 89% (42,164) were employed in various occupational groups.
The average annual increase in base salary for the last four years (2013-2016) was around 1.4% for chief executives, 2.6% for managers and 2.4% for other staff. Base salary is used for general comparison because data for individual employees’ superannuation and performance pay are not collected in the HRC survey. The decrease recorded in 2016 for the chief executive group was due to compositional changes with departing and new chief executives, including the disestablishment of a large role (CERA). Also chief executive salaries are generally reviewed only once in mid-term for those with a five-year employment agreement. In contrast, other employees normally have an annual review of their salary. The average annual increase in base salary since 2012 was around 1.4% for chief executives, 3% for managers and 2.4% for other staff. Base salary is used for general comparison because data for individual employees’ superannuation and performance pay are not collected in the HRC survey. A decrease recorded in 2016 for the chief executive group was due to compositional changes with departing and new chief executives. Also, chief executive salaries are generally reviewed only once in mid-term for those with a five-year employment agreement. In contrast, other employees normally have an annual review of their salary. Excluding compositional changes to the chief executive group, in 2015/16 the average increase to base salary for Public Service CEs was 1.3% (excluding the three CEs whose pay is set by the Remuneration Authority).
The chart in tab 1 below shows the ratios of average base salary for the four management levels compared to non-management staff. These ratios were quite stable over the last five years. In 2016, the average base salary of chief executives in the Public Service is on average 6.1 times that of the rest of non-management staff (down slightly from previous years). The ratios for other management levels were: tier-2 manager at 4.0, tier-3 manager at 2.7 and other manager at 1.7 times relative to other non-management staff.
When comparing the average base salary of chief executives to the rest of the staff (including managers) the ratio was 5.5. This ratio was relatively stable over recent years (though decreasing slightly from 5.8 in 2012). The pay ratio is slightly higher at 6.6 times when measured using the larger total remuneration package of chief executives that includes additional performance-related pay or other benefits.
However, these ratios are modest compared to the market ratios of publically listed New Zealand firms. CEOs are now estimated to be paid 30 to 50 times more than the average wage of workers, according to the recent research on New Zealand pay ratios by Dr Helen Roberts at the Business School of Otago University. http://www.otago.ac.nz/business/research/department/otago119826.html
How much an employee is paid can be influenced by the job size and responsibility of the role. Occupation type is a key factor that influences employee salaries.
Average salary varies widely between different occupations as shown in the chart in tab 2 above. The average salary is highest for Managers, followed by Policy Analysts, ICT Professionals and Technicians, then Legal, HR and Finance Professionals. By contrast, Social, Health and Education Workers, Inspectors and Regulatory Officers, Clerical and Administrative Workers and Contact Centre Workers have the lowest average salaries.
Some of the lower and higher paid occupations are more prevalent amongst certain gender or ethnic groups. The different occupational composition within the gender and ethnic groups will have an impact on their pay gaps, which are discussed separately in the Diversity chapter.
The average salary varies widely among departments as shown in the chart above in tab 3. As at 30 June 2016, the average salary (excluding chief executives) ranged from $65,510 (Corrections) to $130,951 (SSC). Departments that have a higher proportion of staff in operational jobs tend to have a lower average salary, e.g. Department of Corrections, Ministry of Social Development, Ministry of Justice, New Zealand Customs Service and Department of Conservation. In contrast, agencies that have a larger proportion of staff in policy roles tend to have a higher average salary (e.g. State Services Commission (SSC), Ministry of Defence, The Treasury, Ministry of Transport and Department of the Prime Minister and Cabinet).
Average salaries will be affected by changes in the composition of a department’s workforce (for example, due to reorganisation) or changes in remuneration policy. For example, since 2012 the average salary at the Ministry of Foreign Affairs and Trade has increased the most of any department, 18.9% compared with the Public Service average increase of 9.8%. However, the reasons for the increase include adjusting the Ministry’s remuneration approach, localising of lower level positions and organisational re-organisation.
In addition to the HRC survey data, SSC also conducts an annual survey of remuneration of Public Service and State sector chief executives, as well as compiling information on the number of staff earning more than $100,000 across a number of State sector organisations.
Cabinet agreed that remuneration paid to Public Service and State sector senior staff should be disclosed annually in one location. This provides transparency for the taxpaying public around the level of remuneration received by senior State servants. The total remuneration of individual chief executives in 2016 is published on SSC’s website in the Senior Pay (Chief Executives) report.
The numbers of staff (excluding chief executives) who received $100,000 or more in total remuneration (including base salary plus any superannuation, performance and redundancy payments) are shown in two tables below, one for tertiary education institutions and the other for Public Service departments and selected Crown agencies. As salaries increase each year, more and more employees are moving into the $100,000+ income bracket.
The number in the Public Service and selected Crown entities group increased by 1,167 or 15.4% in the year to 30 June 2016. This increase was partly due to the impact of redundancies and structural changes within agencies, as well as some departments having 27 fortnightly pays over the financial year rather than the usual 26. The number of employees in the tertiary education institutions group increased by 256 or 4.3% in the academic year to 31 December 2015. Wage inflation will increase the number of staff receiving more than $100,000 each year as people move up the salary scale.
The Treasury publishes annual Financial Statements which provide a record of the Government's financial performance and of its financial position each year. These statements include personnel expenditure, which covers total remuneration paid to employees. It includes payments such as salaries, employer contributions to superannuation, long service leave entitlements, performance and severance. Personnel expenses for core government agencies increased by 1.7% to $6,666 million in the 2016 June year, while the total Crown personnel expenditure increased by 3.0% to $21,763 million.
|Personnel expenditure in core Crown and total Crown, June year 2012-2016|
|Core Crown personnel expenditure ($m)||$5,915||$6,037||$6,232||$6,552||$6,666|
|Annual Change (%)||-1.4%||2.1%||3.2%||5.1%||1.7%|
|Total Crown personnel expenditure ($m)||$19,475||$19,935||$20,484||$21,124||$21,763|
|Annual Change (%)||2.0%||2.4%||2.8%||3.1%||3.0%|
Core Crown - includes Public Service departments, Offices of Parliament, the NZS Fund and the Reserve Bank of NZ.
Total Crown - includes the core Crown plus Crown entities and State owned Enterprises.
Expenditure on base salaries is the single largest component of personnel expenditure (others include superannuation, performance payments, redundancy costs, etc.). The total salary cost shown in the chart is calculated by multiplying the number of FTE employees in the Public Service by the average annual FTE base salary. These are approximate annual salary costs and do not represent total personnel expenditure. The total salary cost in the Public Service increased by 3.2% ($105 million) to $3,398 million in 2016, up from $3,293 million in 2015. This was driven by a 1.2% increase in staff numbers (FTE) and a 2.1% increase in average salary.
Total salary cost by occupation group is the product of average salary and the number of FTE staff in that group. The Manager group has the largest cost at $685 million in 2016, up 4% from the previous year, as shown in the chart in tab 2 above. The second largest cost is for the Inspectors and Regulatory Officers group at $565 million, followed by the Social, Health and Education Workers at $533 million. These three groups account for over half of Public Service employee numbers and salary costs.
The largest increase in salary cost was for Managers (up $26m), followed by Contact Centre Workers (up $20m), Inspectors and Regulatory Officers (up $19m) and Social, Health and Education Workers (up $18m). Contact Centre Workers had the largest increase in percentage terms (10.3%), which was driven by a 6.4% increase in FTE employees over the past year.
Performance payments are defined as any lump sum payments made to staff, usually as a result of an annual performance assessment that exceeded expectations, or some exceptional collaborative or innovative work. In the year to 30 June 2016, a total of 1,437 people or 3% of employees received a performance payment. The average value for performance payments was $2,705, 11.6% lower than in 2015.
Twenty-two departments made performance payments in 2016, while six agencies did not as shown in the chart below in tab 1. Around 72% of performance payments were given by six departments (Ministry of Business, Innovation and Employment, Ministry of Foreign Affairs and Trade, Department of Internal Affairs, New Zealand Customs Service, The Treasury and Department of Corrections).
The large decrease in the number of performance payments in 2014 reflected a change in the remuneration system at the Ministry of Social Development.
As at 30 June 2016, 86.7% of Public Service employees were members of at least one employer-subsidised superannuation scheme (up from 84.5% in 2015). The majority of staff (67.5%) belonged to KiwiSaver, with 20.6% in the State Sector Retirement Savings Scheme (SSRSS). Membership of KiwiSaver has increased steadily as new employees join the Public Service and are auto-enrolled to the scheme. SSRSS and the Government Superannuation Fund (GSF) schemes were closed to new members in 2008 and 1992 respectively and the number of employees in those schemes is decreasing gradually as members leave the Public Service. The chart in tab 2 above shows the trend of Public Service participation in superannuation schemes over the last five years (2012-2016).
In the year to 30 June 2016, 375 employees in the Public Service were made redundant (slightly down from 380 in 2015). The average redundancy payment was $52,223 (up from $49,382 in 2015). The total cost of redundancy increased by 4.4% to $19.6 million (from $18.8 million in 2015). Nineteen departments reported redundancies, with 72% occurring in five departments (Department of Corrections, Ministry of Justice, Department of Internal Affairs, Ministry of Business, Innovation and Employment and Inland Revenue). The table and chart in tab 3 above shows the number of redundancies in the Public Service has decreased since 2011.
 The LCI is an official measure of wage inflation. It measures changes in salary and wage rates that employers pay for the same job done at the same standard. The LCI does not reflect compositional change in the workforce, service increments, merit promotions and increases relating to performance.
 Data covers 28 Public Service departments, as well as 7 selected Crown entities whose chief executives are under Remuneration Authority jurisdiction, including the Audit Office, New Zealand Secret Intelligence Service, Office of the Clerk, Office of the Ombudsmen, Parliamentary Service, Parliamentary Counsel Office and Parliamentary Commissioner for the Environment. Data from 29 tertiary education institutions are also included.